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Bond vigilantes are on the move as Treasury market blows through Scott Bessent’s red lines

The bond market is currently pricing risk correctly, according to Johns Hopkins economist Steve Hanke—and what it’s pricing in is ugly. In an interview with Fortune’s Nick Lichtenberg, Hanke argued that President Trump has inadvertently mixed what he called “a deadly cocktail” for Treasuries, and the result is a bond selloff that has already pushed yields past the informal threshold Treasury Secretary Scott Bessent has been trying to defend.

Hanke said, “the bond vigilantes have come out of hibernation” in reference to the investors who have served as the scourge of administrations for decades, selling government debt en masse to punish what they see as reckless fiscal or monetary policy, ultimately driving yields higher until policymakers change course. As yields rise, so do the interest rates on a range of consumer credit products, such as mortgages and car loans, making the cost of borrowing more expensive for everyone.

Bessent has said he wants the 10-year yield to carry a “3 handle”—meaning below 4%—and multiple reports describe a widely understood marker around 4.5% on the 10-year and 5% on the 30-year as his upper red lines. The problem: the 10-year is at 4.696%, and the 30-year is at 5.284%. The latter hasn’t been that high since roughly 2003.

Fed chairman Kevin Warsh has declined to give the market “forward guidance” and investors have responded to that uncertainty by selling off U.S. bonds. “The rise in the term premium and bear steepening of the curve following Warsh’s first two FOMC meetings could indicate that the Fed’s credibility is being tested,” Alpine Macro’s Bassam Nawfal said in a note. However, he forecasts that incoming inflation data will be soft and thus stop the Fed from raising rates further this year.

Bonds are getting hammered, and Wall Street says the rout won’t end anytime soon -........

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